With Bitcoin‘s halving event approaching around April 2020, there is much debate among the crypto community regarding its potential immediate and lasting effects.
In a recent blog entry, Arthur Hayes shared his perspective that although the halving could boost prices in the long run, Bitcoin‘s price may decline leading up to and following the actual event.
Unexpected Market Movements
The speaker pointed out that although the halving is typically seen as a bullish signal, the widespread belief in its benefits might result in surprising market shifts. He explained, “When the majority of traders share a common viewpoint, the opposite reaction often takes place.”
Hayes highlighted that the Bitcoin halving occurs during a time when “the dollar supply is less readily available than normal.” This situation, he explained, could potentially lead to greater price fluctuations in the markets.
Based on his assessment, decreasing the rewards given to miners and limiting the availability of dollars in the market might trigger a massive sell-off of cryptocurrencies, leading to a significant price drop.
In preparation for possible market fluctuations, Hayes announced his plan to stay out of trading until May. He underlined the importance of being cautious given the uncertainty, and shared that he had already cashed in on some positions, moving the gains into investments in stablecoins to generate returns.
Although there’s a chance the market may disprove him, Hayes firmly believed in putting risk control before potential profits. He strongly advocated for minimizing losses and keeping a well-diversified investment portfolio in the face of market instability.
Federal Reserve and Treasury Impact on Markets
Additionally, Hayes explored how policies from the Federal Reserve and Treasury impact financial markets. He discussed the methods by which struggling banks can obtain funds using resources such as the discount window, providing insight into the role this plays in market equilibrium.
Banks can use discount windows provided by the Federal Reserve to get cash by offering eligible bonds, mainly U.S. Treasuries and mortgage-backed securities, as collateral.
He believes that the Federal Reserve and Treasury are changing their approach to persuade struggling banks to borrow from the discount window instead of filing for bankruptcy.
The BTFP and the discount window, which he compared, showed a discrepancy. The BTFP effectively addressed insolvency by refunding losses, whereas the discount window merely offered cash based on the securities’ current market worth.
The speaker contended that the Federal Reserve could make the two systems equivalent, essentially maintaining a “hidden rescue operation for failing banks” through the provision of newly created currency.
The Federal Reserve could prevent bankrupt banks from collapsing due to market forces after the expiration of the BTFP program by increasing their balance sheets.
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2024-04-09 13:30